Former FTX CEO Sam Bankman-Fried will testify in front of the House Committee on Financial Services this week to face questions regarding the collapse of his cryptocurrency companies. The first hearing, titled "Investigating the Collapse of FTX, Part I," features testimony from court-appointed CEO of FTX Group, John J. Ray III. Meanwhile, the impacts from the latest crypto crash continue to metastasize throughout the industry.
Bankman-Fried Testimony
The House hearing begins on Tuesday, Dec. 13 at 10 a.m. ET. The committee hopes to get at the underlying factors leading to the crash of the $32 billion cryptocurrency exchange. The committee plans to discuss the use of customer assets, risk management failures, FTX investigations and lawsuits, the impact on the crypto industry and potential regulatory structures, based on the hearing's Dec. 8 memorandum.
"I still do not have access to much of my data — professional or personal. So there is a limit to what I will be able to say, and I won't be as helpful as I'd like," Bankman-Fried tweeted on Dec. 9 when confirming he'd testify voluntarily, rather than face a subpoena. Bankman-Fried said he plans to shed light on FTX US's solvency and American customers, pathways to return value to users internationally, his personal failings and what he thinks led to the crash.
The hearing will be led by Chairwoman Maxine Waters (D-CA) and ranking member Patrick McHenry (R-NC).
Separately, on Wednesday, the Senate Committee on Banking, Housing and Urban Affairs will host their own hearing titled "Crypto Crash: Why the FTX Bubble Burst and the Harm to Consumers," at 10 a.m. That witness list includes Kevin O'Leary, celebrity investor and FTX spokesperson, Professor Hilary J. Allen, of American University Washington's College of Law, Jennifer J. Schulp, Director of Financial Regulation Studies at the Cato Institute's Center for Monetary and Financial Alternatives, and actor Ben McKenzie.
Crypto Crash Impacts Continue
Meanwhile, the fracturing crypto markets showed fresh signs of stress.
In an effort to improve transparency, Binance released its proof of reserves last week, as first reported by the Wall Street Journal. However, the report released by audit firm Mazars didn't address the effectiveness of Binance's internal quality and financial reporting controls, or how its systems liquidate assets to cover margin loans. The report also lacked information regarding its corporate structure and only included three numbers denoted in Bitcoin currency — the "customer liability report balance," the "asset balance report," and the "net liability balance."
Mazars stated that "Binance was 101% collateralized" on an adjusted basis and wrote that "Binance was 97% collateralized" when using the larger "customer liabilities" number for the calculation. However, Mazars declined to affirm its numbers saying it did "not express an opinion or an assurance conclusion."
DOJ Weighs Charging Binance
Early Monday, Reuters and CNBC reported that U.S. Department of Justice officials are split on filing charges against Binance as part of a criminal investigation dating back to 2018. Officials are weighing charges of unlicensed money transmission, money laundering conspiracy and criminal sanctions violations, according to the reports. A number of Binance executives, including CEO Changpeng Zhao, could face criminal charges. In addition, the Justice Department could ultimately either file indictments against Binance and its executives, negotiate the settlement, or close the case without taking any action, Reuters reports.
Binance released a response on Monday saying, "Reuters has it wrong again. We don't have any insight into the inner workings of the US Justice Department, nor would it be appropriate for us to comment if we did. We are proud to have in our ranks some of the most celebrated cyber investigators representing virtually every major international law enforcement agency across the globe... Their hard work has directly resulted in a crypto ecosystem that has far less criminal activity on average than the traditional cash system."
Binance's BNB token fell more than 5% near $275 Monday morning following the news.
The Block CEO Resigns
Elsewhere, Michael McCaffrey, CEO of crypto news outlet The Block, resigned over the weekend. On Saturday, Axios reported he received three undisclosed loans from Alameda Research totaling $43 million going back to February 2021. McCaffrey used a $12 million loan to buy out investors, a $15 million loan to fund day-to-day operations and a $16 million personal loan to buy property in the Bahamas. McCaffrey also stepped down as The Block's sole board member, which is expanding to three people. Taking his place is Bobby Moran, Chief Revenue Officer, who will lead the company as it looks to buy out McCaffrey's majority stake for its restructuring plan.
Argo Blockchain Prepares For Bankruptcy
And Argo Blockchain appears set to declare bankruptcy. The crypto mining company accidentally revealed a petition for bankruptcy announcement that was dated for Monday, Dec. 12. Will Foxley, content director for Bitcoin mining firm Compass Mining, shared a copy of the announcement on Twitter Friday afternoon. Also Friday, shares of London-based Argo Blockchain were temporarily suspended by the United Kingdom's Financial Conduct Authority (FCA) after the company disclosed a revenue decline for November.
Crypto Price Action
Meanwhile, Bitcoin slipped less than 1%, holding narrowly above $17,000 early Monday. The world's largest crypto lost steam after eclipsing $17,525 on Sunday. Bitcoin traded above $21,000 prior to the collapse of FTX in early November.
You can follow Harrison Miller for more stock news and updates on Twitter @IBD_Harrison
